Apartment and villa property markets in Dubai were polarised during the first three months of 2021 as investors sought out larger properties amid the ongoing coronavirus pandemic.
According to real estate consultants Cushman & Wakefield Core, the differing performance between apartment and villa districts being seen in the sales market is also being mirrored in the rental market across Dubai.
The villa market significantly outperformed with a spike of over 137 percent in transactions during Q1 while apartments saw over a 41 percent increase in secondary market transaction activity compared to Q1 2020.
On the other hand, off-plan market activity continued to face headwinds, contracting by 29 percent over the same period.
Cushman & Wakefield Core added that despite the initial period of uncertainty, the UAE real estate sector and the overall economy have fared "impressively well", driven by robust government measures, fiscal incentives, social reforms and one of the highest rates of vaccinations globally.
Prathyusha Gurrapu, head of research and advisory at Cushman & Wakefield Core, said: “Dubai’s successful demonstration of mitigating Covid-19 and being open, relatively safer and connected is supporting new and existing businesses and providing comfort to end-users and investors, resulting in a rise in market activity across all sectors, particularly over Q1 2021.
“The pandemic has also created a seismic shift in how occupiers and developers are evaluating their portfolios and asset performance. Many are considering portfolio overviews to re-assess and in some cases expand due to attractive entry points. This has resulted in a spike in transaction and instruction volumes as end-users, investors and developers are increasingly making investment decisions after taking a wait and see approach over the last few years.”
According to Cushman & Wakefield Core, Dubai saw nearly 10,500 units come to market during Q1. An additional 26,500 units are expected to be handed over in the remainder of the year although further revisions are expected as developers calibrate to ongoing market conditions.
Gurrapu (pictured above) said: “Despite Covid-19 led market challenges, we are seeing a robust increase in residential secondary sales transactions in Q1... A multitude of demand drivers are resulting in this increase, including competitive entry points, variety of options, change in loan-to-value ratios, low interest rates, visa reforms, an economic environment of safety and openness and the need for occupiers to upgrade residences to accommodate COVID led lifestyle changes.”
She added: "We are starting to see stabilisation in average villa sales values with prices showing sustained marginal upticks for the first time since 2014. We expect this raft of demand drivers to continue supporting transaction activity, particularly in the secondary villa market.”
Established districts of The Springs and The Meadows saw a sharp 10 percent year-on-year increase, followed by Emirates Hills (6 percent), Palm Jumeirah (4 percent) and Arabian Ranches (4 percent), while the outer villa districts of Dubailand (-5 percent) and Jumeirah Village Circle (-7 percent) continued to see a decline in annual sales prices.
Average apartment sales prices softened further and are yet to show signs of recovery. Only Palm Jumeirah saw a notable spike in sales prices of over 6 percent during Q1 while other areas continued to witness year-on-year price declines with Dubailand (-15 percent) and Dubai Sports City (-13 percent) being the weakest performing apartment districts.
Gurrapu said the polarised performance between apartment and villa districts seen in the sales market is being mirrored in the rental market. A slow yet steady uptick in villa rental values can be seen from Q4 2020, although the year-on-year values are still at -2 percent.
She added that the prime villa districts of Palm Jumeirah and Emirates Hills buck the trend with 12 percent and 11 percent year-on-year increases while the trend of widespread rental contraction in apartment districts lingers on with most districts witnessing sharp double-digit year on year declines.
“Factors such as existing oversupply issues, most new stock concentrated in the apartment segment and Covid-19 led tenant migration from apartments to villas are collectively adding downward pressure on apartment rents,” noted Gurrapu.